An ESOP is used primarily as
talent retention tool
apart from the larger vision of sharing of wealth.
Earlier to the Companies Act 2103 (“Act”), private limited
companies and unlisted public limited companies had
freedom and flexibility to structure ESOP for their
employees. The Act now has become prescriptive and has
Rules on eligibility of employees/promoters, cliff,
accelerated vesting and the like.
While the changes made in the Act are prospective,
even so, if your company had ESOP earlier and
there are modifications to be made to the Plan,
then please be very careful.
ELIGIBILITY FOR ESOP?
ARE THERE ANY DISQUALIFICATIONS FOR ESOP?
ESOP GETS COVERED UNDER PRIVATE PLACEMENT?
IS BUYBACK OF ESOP POSSIBLE?
HOW IS ESOP SCHEME PUT IN PLACE?
WHERE ALL ESOP DISCLOSURES ARE REQUIRED?
Employee of a
or an Associate
A director, who,
directly or indirectly,
holds more than 10%
Section 42 specifically excludes ESOP
employee, who is
a promoter or
Determination of exercise
price by Registered Valuer
at the time of exercise
CAN TERMS OF ESOP SCHEME BE VARIED?
IS TIME PERIOD PRESCRIBED BETWEEN GRANTING OF OPTIONS AND VESTING OF
WHAT ARE THE SHAREHOLDER
RIGHTS OF EMPLOYEES?
CAN THE COMPANY DECIDE LOCK IN PERIOD?
IS THE OPTION TRANSFERABLE?
Only if it’s not prejudicial to the
interests of option holders
through shareholders’ approval
Minimum time lapse between
granting and vesting is 1 year
Company has the freedom to fix
lock in period. No minimum or
maximum period prescribed for
Can’t enjoy any shareholder’s
benefits, until the shares are
issued on exercise of option (and
allotment of shares).
by a valuation